Come take a test

Suppose you are a partner at a venture capital firm, faced with a financing proposal like this:

The other party requests to exchange $600,000 for 10% equity, implying a valuation of $6 million.

However, the company only made a profit of $60,000 last year. This is a transaction with a 100 times price-to-earnings ratio.

About the company's founders:

One is 22 years old (just dropped out of college), and the other is 27 years old.

They have no significant management experience, and they dress untidily.

The truth: This is Apple Computer in 1977

The founder who was only 22 years old is named Steve Jobs.

The institution that faced this question and ultimately chose to submit the exam was Sequoia Capital, which was only five years old at the time.

Even Sequoia's founder, known as the "Father of Venture Capital," Don Valentine, was filled with doubt when signing this deal. He wrote in an internal memo:

“This is an extremely expensive deal”

“Management level is questionable”

Despite many doubts, Sequoia ultimately chose to “bet.”

However, the twist in the story is that Sequoia did not maintain this equity.

Just a few years later, for various reasons, Sequoia sold off this investment for $6 million.

Today, with Apple's market value surpassing $3 trillion, that 10% stake from back then is worth about $370 billion.

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